Consumer Compliance Outlook > 2025 > Third Issue 2025

Consumer Compliance Outlook: Third Issue 2025

The Electronic Fund Transfer Act, Regulation E, and Instant Payment Services

Kenneth Benton, Principal Consumer Regulations Specialist, Federal Reserve Bank of Philadelphia

To address the growing demand for faster payments, The Clearing House (TCH) introduced its RTP instant payment service in 2017, and the Federal Reserve introduced its FedNow instant payment service in 2023. These services allow participants to make instant payments 24 hours a day, 365 days a year. For example, a consumer can schedule a payment on its due date to avoid a late fee, or an employer can provide earned wage access payments to enhance recruitment and retention. As the number of institutions participating in FedNow and RTP continues to increase, it is important for participants to understand the legal framework for these services to ensure compliance. This article provides a brief history of electronic payments, discusses the FedNow and RTP services, and reviews the legal framework.

ELECTRONIC PAYMENT HISTORY

The Automated Clearinghouse Network

In the 1970s, the Federal Reserve and the banking industry developed the automated clearinghouse (ACH) network to facilitate electronic batch payments and reduce the need for paper checks.¹ After this network was created, the Federal Reserve began providing batch-based ACH transfers to government and private parties through its FedACH service, while TCH began providing batch-based ACH transfers to private parties through its Electronic Payment Network (EPN).² Nacha administers the ACH Network, which includes promulgating the rules for ACH transfers.³

While FedACH and EPN provided faster payment rails than checks, both services had limitations. They were available only Monday through Friday during specified hours, did not operate on federal holidays, and took one to three business days to complete transfers.

Same-Day ACH

To address these limitations, the Federal Reserve introduced its same-day FedACH service in 2010. This service provides same-day processing and settlement for payments initiated before specified cutoff times and on days the ACH operates.⁴ Similarly, Nacha introduced its same-day ACH service in 2016 to provide same-day transfers for payments initiated before specified cutoff times and on the days the ACH operates.⁵ Higher fees apply for these same-day services.

Instant Payment Services: RTP and FedNow Service

In 2017, TCH took the next step in providing faster payments when it introduced RTP, which provides instant credit transfers⁶ 24 hours a day, 365 days a year for institutions participating in the RTP network and for transfers within the United States only. In 2023, the Federal Reserve launched its FedNow Service, another instant payment service allowing consumers, businesses, and government to make instant credit payments to a business or consumer in the United States with an account at a financial institution participating in the FedNow Service.⁷ The table compares the features of the two services.

Sources: Federal Reserve Bank Services, The Clearing House

LEGAL FRAMEWORK FOR INSTANT PAYMENTS: THE EFTA AND REGULATION E

Because RTP and the FedNow Service are relatively new payment rails, questions have arisen about how the Electronic Fund Transfer Act (EFTA) and Regulation E relate to these services when used for consumer transactions. We discuss the legal framework here.

EFTA/Regulation E

The rules for both the FedNow Service and the RTP service include specific references to the EFTA. That law and its implementing Regulation E (12 C.F.R. Part 1005) apply to “any electronic fund transfer that authorizes a financial institution to debit or credit a consumer’s account.”⁸ Regulation E defines account as “a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.”⁹ The regulation further defines electronic fund transfer (EFT) as any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account. The regulation also provides examples of transfers that meet the definition of an EFT and examples of transfers that do not.¹⁰

FedNow Service

In June 2022, the Federal Reserve Board issued a final rule¹¹ to amend its Regulation J, 12 C.F.R. Part 210 (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire) to add Subpart C, “Funds Transfers Through the FedNow Service,” 12 C.F.R. §§210.40–47. This subpart specifies the terms and conditions under which Reserve Banks process electronic fund transfers with the FedNow Service and provides the legal framework for issues arising from use of the service. Under §210.40(b)(4) of Regulation J, Article 4A of the Uniform Commercial Code (UCC)¹² governs FedNow Service transactions, except when Article 4A is inconsistent with the EFTA, in which case “the [EFTA] shall prevail to the extent of the inconsistency.” The Official Staff Commentary for §40(b)(4) further clarifies this:

Under section 4A-108 [of the UCC], Article 4A does not apply to a funds transfer, any part of which is governed by the Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693 et seq.). A funds transfer from a consumer originator or a funds transfer to a consumer beneficiary could be carried out through the FedNow Service and could potentially be subject to the EFTA and Regulation E (12 CFR part 1005) implementing it. If so, the funds transfer continues to also be governed by subpart C, except that, in the event of an inconsistency between the provisions of subpart C and the EFTA, the EFTA shall prevail to the extent of the inconsistency. ... For example, a funds transfer may be initiated from a consumers account at a depository institution, and the depository institution may execute that payment order by sending a conforming payment order to a Reserve Bank through the FedNow Service. If that transfer is subject to the EFTA, then examples of how the provisions of subpart C may govern the transfer include, but are not limited to, the following:

(i) Where the consumer subsequently gives timely notice that the transfer was an unauthorized electronic fund transfer to its depository institution and exercises the right to obtain a refund under the EFTA, the depository institution would be required to comply with the EFTA and the applicable provisions of the EFTA would govern the institution’s obligations to its customer, even if under subpart C the institution does not have a right to receive a refund or reverse the payment order sent to the Reserve Bank through the FedNow Service.

(ii) Where the customer properly asserts an error under the EFTA with respect to the transfer and exercises the right to obtain a refund to correct the error under the EFTA, the depository institution would be required to comply with the EFTA and the applicable provisions of the EFTA would govern the institution’s obligations to its customer, even if under subpart C the institution is obliged to pay its payment order sent to the Reserve Bank through the FedNow Service.¹³ (Emphasis added)

The Board further addressed the application of the EFTA and Regulation E to FedNow transactions in the preamble of the Federal Register notice of the 2022 final rule. Although Regulation J specifies that Article 4A generally governs the rights, obligations, and liabilities of participants in the FedNow Service, and Article 4A generally allows participants to vary their provisions by agreement of the affected parties, the Board noted in the preamble that “banks must nevertheless comply with requirements under other applicable law that, unlike UCC Article 4A, cannot be varied by agreement, such as applicable consumer protection requirements under the EFTA.”¹⁴

RTP

The RTP operating rules address the application of the EFTA and Regulation E to RTP transactions:

EFTA Consumer Payments. For an RTP Payment any part of which is subject to the EFTA, the rights and obligations of a Participant and a Consumer Customer shall be governed by:

a. the EFTA and Regulation E, to the extent applicable to the transaction, and,

b. to the extent consistent with EFTA and Regulation E as applicable to an RTP Payment, by these RTP Operating Rules, and the laws of the State of New York, excluding Article 4-A of the New York Uniform Commercial Code.¹⁵ (Emphasis added.)

CONCLUSION

Electronic payments have evolved from ACH transfers in the 1970s, which took several business days to settle, to the current availability of instant payment services. The instant payment rails benefit all stakeholders in the payment system. Although the rules of these instant payment services vary to a degree, to the extent that a fund transfer initiated to or from a consumer account using the FedNow Service or RTP is an EFT under Regulation E, that transfer would be subject to the EFTA and Regulation E. Specific questions should be addressed to your primary regulator.

ENDNOTES

¹ See “Automated Clearing House Payments” on www.federalreservehistory.org. We have omitted a discussion of wire transfer services, such as FedWire and the Clearing House Interbank Payments System.

² See “Automated Clearinghouse Services” on www.federalreserve.gov.

³ See “Nacha Operating Rules” on www.nacha.org.

⁴ “Federal Reserve Announces Posting Rules for New Same-Day Automated Clearing House Service,” press release (June 21, 2010).

⁵ See “Same-Day ACH” on www.nacha.org.

⁶ A credit transfer refers to an electronic payment initiated by the sender. This contrasts with a debit transfer, in which a financial institution receives a request for a payment the recipient initiated.

⁷ See “About the FedNow Service” on www.frbservices.org.

⁸ 12 C.F.R. §1005.3(a). See also 15 U.S.C. §1693a(2) (defining account), §1693a(7) (defining electronic fund transfer) and §1693a(9) (defining financial institution).

⁹ 12 C.F.R. §1005.2(b)(1).

¹⁰ 12 C.F.R. §1005.3(b).

¹¹ 87 FR 34350 (June 6, 2022).

¹² The Board included the text of Article 4A in Appendix A to Part 210 that applies to FedNow Service transactions. Because some states have slight variations in their versions of the UCC, it is important that financial institutions use this version. For example, the Uniform Law Commission amended Article 4A-108 in 2012 to address an amendment to the EFTA in §1073 of the Dodd–Frank Act to provide protections for consumer foreign remittance transfers. (The Consumer Financial Protection Bureau implemented the amendment in Subpart B of Regulation E, 12 C.F.R. §§1005.30–36.) Wyoming did not adopt this amendment. See Wyoming Statute §34.1-4.A-108. The Board’s version of Article 4A includes the amended §4A-108.

¹³ Comment 40-b.4 (Appendix A to Subpart C).

¹⁴ 87 FR 34351 (June 6, 2022).

¹⁵ RTP Operating Rules at p. 15 (June 16, 2025).